There are really only 4 sources of cash to make real estate investments–
- Your own cash, which makes sense if you want income, but don’t need to leverage growth
- The Bank’s cash (fill in the name of the bank here), which works if:
- You have no more than 4 properties total (banks and other lenders are currently restricting your ownership numbers to 4 or fewer properties. Considering that leveraged purchases and realistic rents are the bread and butter of real estate investing, this makes little sense–it does prevent speculation, but certainly does not provide an appropriate path to investment.
- You can (or wish to) prove your income, and that income will support the properties to any amount above certain rental $.
- You have plenty of reserves.
- A consortium of people “going together” to buy properties. Usually this takes the form of a limited partnership or LLC, put together either by the parties themselves, or by an enterprising real estate broker, to purchase properties for cash.
- Private money loans. These can be used to leverage your cash up to approximately the level of rents plus expenses (normally somewhere around 30-40% equity positions); an astute private money broker will not arrange a loan that involves negative cash flow, because the risk for the private money investor is too great. This coming year is likely to see a resurgence in private money loans. The investors I know (and I know many), are ready to invest again, for the right opportunity. If you intend to borrow money this way, plan on having an equity position of 30-40%, with at least 20% of your own money invested. I do not know of any investor who is willing to lend money to borrowers without the borrower taking a greater risk than the investor. However, I believe that many creative solutions can be made available, so that borrowers and investors both know they have a good opportunity without excessive risk. If you need money, contact me. If you have money, contact me. Jim and I can arrange things for you so that to benefit your financial future dramatically. Projected interest rates range from 9% (for an outstanding opportunity), to 12% for a mediocre opportunity, with fees wrapped into the loan (your proceeds will be adjusted accordingly, if you are a borrower). There is no such thing as a “private money loan with no closing costs.” That particular animal doesn’t exist.
